Jim Clark: Margin tax will drive business out of Nevada

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“The sword of Damocles (would be) hanging over my head.”

That is how an out-of-state business owner being recruited to move to Nevada by Gov. Brian Sandoval described a ballot measure to tax gross business margins. He returned to his home state and remains there.

Meanwhile, Nevada businesses capable of relocating are nervously looking at sites in other states.

This tax proposal, dubbed the “Education Initiative” by its sponsor, the Nevada State Education Association, will go before Nevada voters this November.

It was supposedly designed to raise a lot of money for public education but the way its written there is no guarantee of that. What it certainly will do is drive business and jobs out of Nevada.

Under the proposal businesses would calculate gross receipts, subtract an arbitrary allowance for costs plus payroll taxes and be then be taxed 2 percent of the result. Firms with gross revenues under $1 million would be exempt until revenues exceed the exemption by as little as $1 at which time the tax would be assessed against all earnings, a severe disincentive to growth.

The only other state that has anything like this measure is Texas, where it was instituted to replace another business tax and provides for taxes at half the rates sought to be imposed in Nevada.

Nonetheless, the controversial and confusing law has spawned continuous battles in the Texas Legislature and at least 57 lawsuits according to Texas manufacturer Andy Ellard who was a panelist at Directions 2014, an economic forum of more than 800 area business leaders held at the Peppermill last week.

Tahoe resident Tim Wulf, who owns two Jimmy John’s Gourmet Sandwich shops in Reno, told the Directions 2014 audience that he calculated his tax liability at more than $30,000 if the ballot measure passes this November.

“(The proposal would be) clearly destructive to the economy. Ultimately some businesses will fail and some won’t come to Nevada at a time when we’re trying to attract them here,” he added.

Governor Sandoval told the business leaders: “It’s a bad idea. It will hurt Nevada businesses and stifle growth.”

Nevada Taxpayers Association Carol Vilardo said: “There are myriad issues that will put us in the courts,” alluding to potential law suits because the measure lacks conformity with federal tax laws and is uncertain over which parts of business revenue would be taxed.

Is there anything good about the proposal? If so you probably wouldn’t hear it at Directions 2014. Education Initiative Campaign Manager Dan Hart said in Las Vegas that the measure “is an effort to address more education funding which the legislative process has resisted doing.”

The teacher union estimates the proposal will raise about $800 million annually all of which would have to be spent for K-12 education. Are they fooling themselves? The Texas law is still being disputed in courts so the answer is unclear.

But even if the estimate is correct, the Carson City District Court held in 2012 that: “the initiative does not prevent the legislature from supplanting educational funds with the margin tax.”

In short, if legislators think K-12 education deserves $800 million and that’s what the initiative produces they can spend funds that would otherwise go to education on anything they want. That’s what happened in California when they approved a lottery to “fund education.”

Whatever the measure might raise there is no accountability under the initiative. The funds would simply be divided up among the 17 school districts to be spent any way they want.

Voters should bury this thing next November.

Jim Clark is president of Republican Advocates, and has served on the Washoe County and Nevada state GOP Central Committees. He can be reached at tahoesbjc@aol.com.